Sixth Circuit Rejects Two-Step Collective Certification Process in FLSA Suits

In a welcomed change to a class certification process that has long favored plaintiffs, the Sixth Circuit’s May 19, 2023 decision in Clark/Holder v. A&L Homecare and Training Center, LLC adopts a new standard for certifying Fair Labor Standards Act collective actions. In doing so, the Sixth Circuit becomes just the second appeals court to reject district courts’ use of the common two-step procedure for collective action certification.

The FLSA allows employees to file suit for alleged federal minimum wage and overtime violations. Employees can pursue alleged violations on “behalf of…themselves and other employees similarly situated.” The Supreme Court held, in Hoffman-La Roche v. Sperling, 493 U.S. 165 (1989), that courts have an implicit judicial power, when “appropriate,” to facilitate notice to “potential plaintiffs.” Id. at 169. But, “potential” was not clearly defined by the Court. Clark/Holder sought to answer the question of which plaintiffs are sufficiently “similar,” thus requiring receipt of notice of an FLSA suit as “potential plaintiffs.”

In September of 2020, the co-plaintiffs, who were home-health aids, brought suit against their employer under the FLSA and corresponding Ohio law. The named-plaintiffs alleged they were not paid sufficient overtime, nor properly reimbursed for vehicle expenses. The plaintiffs moved the district court to facilitate notice of their action to three groups of employees who worked for the employer. In doing so, the court utilized the nearly universal two-part certification process for FLSA collective actions adopted by most district courts since 1987. See Lusardi v. Xerox Corp., 118 F.R.D. 351, 361 (D.N.J 1987). Under that two-step certification process, courts first determine whether there is a “modest factual showing” that those to whom plaintiffs want to send notice are “similarly situated” to the original plaintiffs (the “conditional certification” step). As implied, a “modest factual showing” is a very lenient standard and most courts conditionally certify the collective action at the initial stage. Subsequently, when merit discovery concludes, courts engage in the second step of the certification process, revisiting the issue of certification to confirm whether those “other employees” are, in fact, similarly situated to the original plaintiffs based on a more rigorous evidentiary burden.

The Clark/Holder court applied the modest factual showing test during the conditional certification state, certifying two of the three employee groups as “collectives” for purposes of receiving notice of the lawsuit. The third group was excluded from certification because they had signed “valid arbitration agreement[s]” with the employer. However, the district court noted that the Sixth Circuit had yet to review the merits of the Lusardi two-step certification method, and in fact, the Fifth Circuit recently rejected the test, in Swales v. KLLM Transport Services, LLC, 985 F.3d 430, 434 (5th Cir. 2021). Further, the district court noted that the Sixth Circuit had not considered the impact of an arbitration agreement on an employee’s ability to receive notice of collective actions. The court therefore certified its order for interlocutory review under 28 U.S.C. 1292(b), and the Sixth Circuit granted permission for the employer to appeal and for plaintiffs to cross-appeal that order.

On appeal, the plaintiffs argued that the Sixth Circuit should adopt the lenient Lusardi approach, while the defendant argued the court should reject this approach as occurred in Swales and require the court to make a “final” determination of substantial similarity before requiring notice of the suit to other employees.

Rather than adopting either approach, the Sixth Circuit rejected both and created the “strong likelihood” standard, mirroring the standard used by federal courts in determining whether to grant a preliminary injunction. Under this new standard, plaintiffs seeking certification of a collective action must show a “strong likelihood” that those employees who will receive notice are similarly situated to the plaintiffs themselves. This requires a showing “greater than the one necessary to create a genuine issue of fact, but less than the one necessary to show a preponderance.” The court disagreed with the defendant that a determination on whether other employees are “actually” similarly situated should, or even could, occur in the absence of these employees. But, the court also discouraged against the over-lenient “modest showing” standard in the Lusardi approach. Regardless, the court felt this new, compromising analysis should be expedited “to the extent practicable.”

Therefore, the Sixth Circuit vacated the district court’s notice determination and remanded the case for redetermination of that issue under the “strong likelihood” standard.

We will closely monitor how federal courts subsequently apply, or perhaps reject, this “strong likelihood” standard. If you have any questions, please feel free to contact your Dinsmore employment/litigation attorney.